by

Commissioner Roel C. Campos

U.S. Securities and Exchange Commission

Washington, D.C.
October 21, 2005

Thank you, Paul Stevens, for that very kind introduction. It's especially meaningful since you are one of the few individuals on the East Coast who even knows what the Astros are. Of course, it is a time for celebration for the fans of the Houston Astros, such as me, for the Astros having made it into the World Series for the first time in their history - over 44 years.

Before I begin my remarks today, I would like to extend on behalf of the Securities and Exchange Commission ("SEC") our deepest sympathy to Zaigham Rizvi, the head of the Pakistan association and Peter Kurian, the head of the India association, on the terrible losses and devastation caused by the recent earthquakes in South Asia. I am confident of the desire of our government to provide assistance and of the generosity of the American public to help in whatever manner they can.

Before I start, I must give the standard SEC disclaimer that what I say today constitutes my views and are not necessarily the views of my fellow Commissioners, the Commission or its staff.

Today, I would like to begin by commenting on some very general trends in the investment fund world. Some of my observations will echo Paul Stevens' insightful remarks to the conference earlier this week. So, let's begin by pretending that we can go up very high - say 50,000 feet or so and look down at the investment fund world. What do we see?

I. Trust: The Investment Fund Industry's Most Valuable Asset

First of all, there are some truly astounding statistics indicating the enormous success of the fund industry. There are many sources for amount of assets under management; some may quarrel with my numbers. However, it is clear that the numbers are gigantic. The industry today manages $8.518 trillion of U.S. investors' assets and $16.13 trillion in assets worldwide. These numbers represent tremendous growth for the investment funds of the world and the prospects for further growth seem assured.

Consider, however, whether the dollars under management - as huge as they are, represent the most valuable asset of the investment fund industry. I submit to you that these amounts under management are not the most valuable asset of the industry. Instead, I believe that the most valuable asset by far is the existing trust and confidence between fund managers and shareholders. After all, that trust is responsible for producing the huge sums under management today and in the future.

Many wise individuals over the centuries have observed that trust can take many life times to build, but it only takes an instant to lose it. People often speak of investor protection and investor business goals as though they are mutually exclusive. However, I firmly believe that they are not only fundamentally intertwined, but mutually dependent. It's really quite simple - strong investor safeguards begets investor confidence which in turn begets more revenue and business for your funds. Conversely, loss of investor confidence has negative economic consequences for the fund industry and the financial markets. Nowhere has this link been shown more clearly than in the response by mutual fund investors in the immediate aftermath of the 2003 mutual fund scandals. Since 2001, we have watched investors in one of the largest implicated mutual fund complexes withdraw almost $86 billion out of its stock and bond funds. This amount represents almost a third of the assets managed in that fund family at the end of 2000. If investors are said to vote and speak with their feet, this mass exodus sent a very clear message: Trust matters. Similarly, compliance and discharge of fiduciary duties matters.

In considering the incalculable value of trust and confidence to the investment fund industry, is it not a simple proposition that investing in maintaining that trust makes business sense? Should not the fund industry as a fundamental matter support minimizing all conflicts of interest, support total transparency, and insist on scrupulous compliance with all regulation? Having run a company in my former career, I think I can recognize a good investment when I see one. It is simply "good business" to protect zealously that most valuable of assets - the trust between fund managers and shareholders. As a consequence, does it not make the same business sense to support regulation that maintains that trust?

While I agree that the best regulation is the least that is required, we also need to keep in mind that regulation is not just good for investors but is also good for funds. After all, when focusing on the costs of regulation, you also should focus on what is at stake - trillions of dollars in potential business! To put some context to my point, let's look at a recent study. According to the recent Rydex Investments annual AdvisorBenchmarking study, compliance-related costs have decreased from 6% to 4% of total firm costs in the past year. Four percent appears to be a relatively small amount compared to the 58% that firms spend annually on compensation and the 22% that they spend on office expenses and rent. This amount seems even more modest when you consider that conference, travel and entertainment expenses also comprised 4% of average annual firm expenses. Do I need to ask whether firms should spend at least as much on compliance and disclosure to maintain the trust of investors as they are spending on entertainment and travel?

II. Baby Boomer Retirement and the Challenge to the Fund Industry

We all know that in the United States and in almost every major country in the world, a mega-trend is occurring today. As Paul Stevens' described yesterday, huge numbers of individuals around the world are poised to retire over the next several years. This is immutable, inevitable - and we are watching this trend unfold in our own lifetime. In the United States alone, the number of Americans between the age of 65 to 84 is expected to grow approximately 80% by the year 2030.

This development presents both challenges and opportunities for the industry. This is a population of people that are uniquely vulnerable. And while this presents tremendous opportunities for the industry, it also comes with an equally tremendous responsibility to ensure that the protections are adequate. I therefore submit to you - how are you going to meet these challenges?

One of the fundamental questions that I ask you to carefully consider is whether the investment products you offer are suitable and appropriate for retirees. For example, does it make sense for retirees to invest in benchmarked indices when many of them have extremely low tolerance for risk and fixed incomes? Matching indices year after year is small comfort to retirees when those indices post double-digit losses. This is a population of people who can ill-afford such volatility, and who have little if any principal to spare on such losses.

I also believe that it is fair to take a close look at whether the products in the retirement sector are providing adequate disclosures and compliance safeguards to investors. Specifically, are these investors receiving the same types of information and investor protections as are being provided to investors in other, similar investment products?

III. Globalization and the Fund Industry

One of the most important things I have witnessed as a Commissioner of the SEC is the rapid globalization of our capital markets and the financial sector. Our world has become intertwined on so many fronts - technological, political, as well as through our capital markets. As our countries share investors and capital, we also find that we experience similar problems and solutions. In fact, one of the striking themes that I have noticed as I have met with my counterparts in Europe, Asia and other countries is that even when our ultimate policy determinations differ, our concerns and regulatory focus remain remarkably similar.

I have long supported the SEC's work with the international community and am proud to represent the SEC in the multi-national International Organization of Securities Commissions - also known as "IOSCO." I firmly believe that working with our international counterparts is not only a desirable goal - but one that is quickly becoming a necessary fact of life in our rapidly changing world of cross-border businesses, markets and regulation.

Thus, I was very happy to hear Paul Stevens' remarks yesterday that the wordwide fund industry has a common interest in working more effectively and more formally with IOSCO. I applaud the commitment by the IIFA to establish a formal process for input to IOSCO, and could not agree more that such collaboration should be fruitful and productive for both industry and regulators alike. In this regard, I would like to note that the Chairman of IOSCO Technical Committee's Standing Committee 5, Hulbert Reynier, is participating in this conference. As you all know, Hulbert's work with Standing Committee 5 deals with many issues of the fund industry in the international context.

There are many current areas of IOSCO - market timing, anti-money laundering, fund governance, and credit rating agencies - for which the industry has already provided valuable contributions and insight. Moreover, there will, in the very near future, be significant work in the area of hedge funds and soft dollars that I have no doubt will include heavy industry participation.

IV. Recent Developments: Soft Dollars

Given the remaining amount of time I have left, I'd like to talk briefly about an area that I know is of great interest to all you, and one that was very recently considered by the SEC - soft dollars. The SEC has just published its eagerly anticipated interpretive release which provides guidance to money managers who use "soft dollars." This interpretation was arrived at through careful balancing and analysis of the language of the safe harbor, the Congressional record, Task Force recommendations, and industry and investor concerns. It also was issued fairly contemporaneously with the UK Financial Services Authority's own guidance on soft dollar arrangements.

The proposed interpretation is quite detailed and I encourage each of you to read it on the SEC's website. However, I wanted to outline for you in general terms three important areas that this interpretation deals with:

First, the interpretation draws several lines within the broad categories of eligible research and brokerage products and services. By delineating certain distinctions, such as "intellectual content," the interpretation strives to provide clear guidance regarding protected services. While the proposed interpretation seeks to present a uniform approach to the safe harbor analysis, I believe there are some items which may not fit neatly into this analysis but that clearly were not intended to fall within the safe harbor. Thus, I hope each of you will provide us with your comments and thoughts on whether the guidance offers adequate comprehensiveness and clarity.

The interpretation also reaffirms the SEC's position on third-party research, as well as commission-sharing arrangements generally. Since 1980, the SEC has held that research provided through third-party arrangements falls within the safe harbor so long as, among other things, the broker is obligated to the third party to pay for the services. This view has not changed and there should be no uncertainty as to whether these arrangements fall within the four square corners of the safe harbor. As I emphasized at the SEC's open meeting for this interpretation, I firmly believe that investors are best served if research of all types - both proprietary and third-party - is widely available to all investment managers.

Finally, the interpretation continues to confirm the money managers' obligation to make a good faith determination that commissions paid are reasonable in relation to the value of services and products provided and the managers' obligation to seek best execution.

Notably, this is an area in which the SEC and its UK counterpart, the Financial Services Authority ("FSA"), are both focused on.

Our interpretation is similar in many ways with the FSA's rules and guidance on bundled brokerage and soft commission arrangements. Although the FSA framework is not structured as a safe harbor, it follows the SEC's general approach of permitting soft dollar arrangements for legitimate execution and research services rather than imposing an absolute ban on such services. Moreover, the lines that both the SEC and FSA have drawn with respect to research and non-research services are similar in many ways. For example, we both agree that certain overhead items such as computer hardware, telephone lines and employee salaries are not sufficiently connected with particular investment management decisions or brokerage to be considered eligible research. On the other hand, we also agree that original research, whether proprietary or third-party, constitute valuable and valid investment related services.

There are some notable differences - for instance, market data information. We consider market data to be research, the FSA generally does not. Moreover, the FSA's guidance has already addressed bundled brokerage arrangements - a component that was not addressed in our interpretation.

Disclosure regarding soft dollar practices is another area that the FSA currently is working on, and one which we hopefully will address in the near future. This past September the FSA issued a consultative paper on the disclosure of bundled brokerage and soft dollar arrangements to retail fund investors. The SEC's recent interpretation did not deal with disclosure and this is clearly an area in which we need more study and work. However, I - along with each of the other Commissioners - have strongly requested that the Division of Investment Management make soft dollar disclosure concerns a priority. I believe that the disclosure concerns have become more important as technology has improved and available products and services have multiplied. In the face of this progress, the fund directors remain in the dark regarding the costs and value of the various services and products for which they are paying. Thus, I am hopeful the SEC will address these issues in the near term.

V. Strengthening Compliance: A Shared Responsibility

I opened my remarks by stating that "trust" was the fund industry's most precious asset. I'd like to close by emphasizing that good, active compliance is by far the best means to safeguard this precious trust.

With an industry that manages over $16 trillion assets today, we can no longer presume that investing, either directly in the markets or through investment funds, is an activity limited to the wealthy few. Today, individuals of all economic and international backgrounds are turning to the financial markets and its professionals to assist them in reaching retirement, education, and personal savings goals. Moreover, many of these investors look directly to investment funds to provide valuable investment management and advisory services necessary to meet these goals. Thus, anything that compromises the integrity of these funds directly compromises the delicate relationship of trust that you have with each and every investor.

Both the industry and regulatory community have recognized that compliance is an essential component in fostering and maintaining this trust. Perhaps the clearest example of the SEC's focus on the compliance function is the new "Compliance Rule" that we adopted in December 2003. The new rule requires every U.S. registered investment company and investment adviser to adopt strong compliance controls and to appoint a chief compliance officer - or, as we call them, "CCOs" - to administer these controls. The goal of the rule is to codify and enhance the compliance function, and by doing so, to foster improved compliance.

I also believe that you - the investment community - have recognized the critical importance that an effective compliance program has for the success of your business model, and I commend you on having taken this responsibility seriously. Over the past year, our staff has conducted 25 regional CCO Outreach seminars for 1,200 local CCOs that have focused on the "nuts and bolts" of the examination process, common compliance pitfalls, and the SEC resources available to help them. I understand that the industry response to these regional training sessions has been overwhelmingly positive. 91% of the CCOs attending the seminars said that the relevance, effectiveness of the speakers and presentation of materials was either "good" or "excellent," and 79% of the attendees said that the level of the presentations was neither too advanced nor too basic, but "about right" for them.

These regional outreaches have also served as a lead-up to our very first CCO Outreach Program National Seminar which will be held at the SEC headquarters in just a few weeks. This National program will aim to protect investors by enhancing communication and coordination with CCOs and helping them do their vital jobs.

In addition to the National and Regional Seminars, our staff will be issuing a periodic newsletter, the "CCO Observer," which will discuss relevant regulatory matters such as new rules, interpretive releases, recent examination findings, relevant enforcement actions and more. These newsletters will be written in a usable and accessible format with electronic links to relevant materials on the SEC's website.

The CCO Outreach program represents our efforts to not only better communicate our concerns to the industry, but also to facilitate valuable information back to us from the industry. We have established an Exam HotLine that chief compliance officers can call if they have a complaint or concern about an SEC examination. We hope that greater communication between the SEC and CCOs will continue to help foster strong compliance programs.

VI. Conclusion

As the industry continues to grow and expand, such growth also brings with it heightened risks and increased responsibility. The onus falls on us, the international regulatory and industry communities, to safeguard the investing public against these increased investor protection risks and vulnerabilities.

Thus, I urge you to view our goals at the SEC as one in the same as yours - we both want to strengthen compliance in the industry for the protection of investors. The SEC wants this because it is its statutory mandate and driving purpose. You want this because it supports your business needs and increases investor confidence in your products. Let's approach this as our shared responsibility.